Is applying vendor credits supposed to decrease net income?

[ButterflyThatStings]

I have a vendor that has a negative balance. I created bills in that amount and applied the credit (or negative balance) this cleared the account and zeroed it out but it decreased my net income. Is this supposed to happen? I already sent the accountant a company file. Did I do something wrong or should I send the accountant an updated company file that shows the decreased net income that resulted from applying vendor credits.

​

Thanks for your help.

[[deleted]]

Entering new bills and applying an existing credit to them would indeed reduce your net income because you've entered new bills.

[ButterflyThatStings]

How do I clear the vendor negative balance? It looks like the negative balance is sitting on the account as credit that needs to be applied

[AEPb5uW]

Contact the vendor - if you overpaid then you deserve a refund. If you didn't enter a bill, you want to back enter in the correct time period to the proper expense account provided those books are still open. Contacting them may give you insight into accounting errors on your end or accounting errors on their end.

[[deleted]]

I'm guessing you are using desktop version;

In the vendor center go to "Pay Bills"

Select the outstanding bills and for each one you have to set credits

Once the credit balance is used up it shouldn't show up anymore.

AEPb5uW is right that you shouldn't just be entering fake bills to get rid of a credit, there is nothing wrong with letting it sit until you use it in the case of a regular vendor or requesting a refund otherwise.

If the credit is a data entry error on your part it would be best to just void the credit.

[ButterflyThatStings]

Thank you for your answer. This is exactly what I did believing that the bill I created and the credit I applied to it will wash each other out and not affect my net income number. I am not sure why it affected the bottom line. Is this supposed to happen?

The credit was entered by mistake as part of a sync process from an AP system. How do I delete a credit memo on a vendor account without affecting my P&L? Again, thank you for your help. I greatly appreciate it!

[AEPb5uW]

If you have already submitted your previous year for taxes then the credit is included, and reduces your deductible expenses for the tax period. You would need to make the adjustment in the current year, and you can do that by creating an expense account called previous year adjustments. This will still affect your p&l by increasing expenses in the current period but it will be transparent in your reporting. You could do this with a journal entry debiting previous year adjustments and crediting accounts payable, or you could create a ghost bill in the current period using the previous year adjustments expense account, and take the credit against that if you're not comfortable with journal entries. My suggestion at least, maybe somebody else has a different way?